Stamp Duty changes: Why you should take expert advice and avoid aggressive tax schemes

With coronavirus restrictions now starting to be lifted – and the huge implications this will have for businesses everywhere – you could be forgiven for having overlooked imminent changes to stamp duty rules.

However, it’s important that you are aware of the new rules as they could make your future corporate transactions more expensive.

In my past articles I’ve often talked about how the likes of management buyouts and demergers are generally free of capital gains tax, corporation tax and income tax.

Stamp duty doesn’t tend to get a mention, as unlike these other taxes, it’s often dismissed as trivial and not worth worrying about because it’s usually charged at 0.5%.

But 0.5% on a transaction worth £1 million is £5,000, which is not insubstantial.  And what if the company is worth £2 million or £5 million or even more?

The types of transaction that qualify for relief from capital gains tax, etc. are not quite the same as those that qualify for stamp duty relief. Some corporate transactions attract relief from all these taxes, while others qualify for capital gains tax, income tax and corporation tax relief but not for stamp duty relief.

For many years, we have managed these differences by structuring transactions to stop stamp duty arising, in ways that were apparently acceptable to HMRC. These mechanisms were well known to the Inland Revenue and, more latterly, HMRC and were considered uncontroversial, so tax advisers have been using them since the current rules were first introduced, in 1986! However, HMRC has now decided to change some of the rules, meaning that stamp duty will now be payable on some transactions which previously would have been free of it.

These changes will come into force in July this year when the current Finance Bill gets Royal Assent. There is another provision that softens the blow slightly, by preventing a double charge to stamp duty in certain cases, but it does mean that many transactions in the future will be more expensive.

I’m sure some clever people out there will come up with complex mechanisms for avoiding stamp duty on these transactions, and some businesses might be tempted to try them. If you encounter such a scheme, please walk away.

In my experience, many tax avoidance schemes don’t work as advertised and the tribunals and courts tend to bend over backwards to find against taxpayers where they feel that an abusive scheme is being used. It’s better to do transactions in a tried and trusted way and accept that you might need to pay some tax, rather than worrying for years after that HMRC might challenge your aggressive tax planning.

So, my advice regarding corporate transactions in future, is to acknowledge that they may be more costly but to make sure that yours is put together by somebody with many years’ experience in this specialist area.

That way you can ensure that your transaction qualifies for all the reliefs available to you and keep the tax cost down to the absolute minimum.